HKSAR v. Muhammad Nadeem Bhutta

DCCC 147/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 147 OF 2015

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Reasons for Verdict

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Introduction

1.According to the prosecution, this is a case of money laundering.

2.What happened was on or before 10:52 hours on 7^th March 2013, a sum of money, 966,256 euro, was remitted from a Spanish company (VSAU) in Madrid to the HSBC bank account of the defendant’s company, Arsons System (HK) Limited, in Hong Kong.

3.Within a day or two of its deposit, the defendant tried to remove the money from the account by 4 lots by way of either cash withdrawals or telegraphic transfers to another bank account in a foreign jurisdiction. Except for the last one, the first three were successful.

4.1^st lot at 16:50 hours on 7^th March - 248,235.05 euro (equivalent to 2.5 million HKD) converted into HKD and withdrawn in cash (successful);

2^nd lot at 10:21 hours on 8^th March - 566,014 euro by telegraphic transfer (TT) to the bank account of a company in Cyprus (successful);

3^rd lot at 10:29 hours on 8^th March - 98,800 euro (equivalent to 1.0 million HKD) converted into HKD and withdrawn in cash (successful);

4^th lot at 16:39 hours on 8 March - 50,400 Euros by TT to the bank account of the same company in Cyprus (unsuccessful).

5.It is not in dispute that it was the defendant who dealt with the money in the account on the above-mentioned 4 occasions and that gave rise to the 4 charges in the present case, namely,

Charges 1-3 – dealing with property known or believed to represent proceeds of an indictable offence and

Charge 4 – attempting to do the same.

The defendant pleaded not guilty to all the charges.

The origins of the money - Telephone Deception

6.On 6 March 2013, Madam Angeles Barrios (PW1), the then financial controller of VSAU, testified that she received a phone call at her office in Madrid Spain from someone who claimed to be the CEO of the company, Mr. Mogens Bay, and believing that it was the real Mr. Bay, she followed his instructions to transfer the money to the defendant’s company bank account for investment purpose.

7.She also received an email from the CEO confirming the instructions, together with an invoice from Arsons System (HK) Limited, which tells her to remit 966,256 euro to the defendant’s company account as provided in the invoice (See Exhibit P.2).

8.It was only after the money had been transferred, did she then find out she had been cheated because the real Mr. Bay did not give those instructions to her, and the matter was reported to the police both in Spain as well as in Hong Kong.

Issue of the case

9.Basically the defence do not dispute that such amount of money was indeed deposited into the defendant’s company bank account on the day in question; nor do they challenge the fact that it came as a result of a telephone deception, and thus the money represents the proceeds from an indictable offence.

10.The main issue turns on the question whether the explanation offered by the defendant is credible or not.

11.If there is a possibility the defendant is or could be telling the truth, he should be acquitted. But the onus is always on the prosecution to prove the charges against the defendant beyond all reasonable doubt. Even if the court rejects the defendant’s version, it still has to look at the facts found proved and decides whether the prosecution have discharged the onus to the required standard.

12.The court is aware of the fact that the defendant is a man of clean record- that helps him in two ways, first, he is less likely to commit the offences as alleged by the prosecution; secondly, his words are more likely to be the truth.

The Defendant’s explanation

13.The defendant testified that the money was sent to him from a buyer, Mr. Johnas Mallaka (Johnas), who at that time had struck a 3.6 million (HKD) deal with the defendant in that Johnas would buy from the defendant 600 ipads at the price of HKD $6,000 each.

14.The money, more than 2 times the amount required for the payment of goods, was sent by mistake.

15.The defendant was asked by the buyer to pay the excess back to him by transferring the money to a designated overseas bank account.

16.The defendant withdrew cash twice amounting to HKD 3.5 million (first with 2.5 million and later 1 million), initially with the intention of making deposit to a supplier of ipads, but as the deal with Johnas fell through, he was then asked by the buyer to return the rest of the money.

17.The defendant handed over HKD 3.5 million in cash to a man called Mario whom the buyer sent to collect the money.  

Analysis

The buyer-Johnas Mallaka

18.The defendant said that Johnas was a walk-in customer with whom he had no previous dealings. All that he knew about him was that he was a white male in his 50s, and of course his name as well, but that was it. The defendant did not know anything further such as whether Johnas had a company of his own or what company he worked for etc.

19.Defendant said Johnas walked into his shop one day in September 2012 making enquiries about buying large quantity of ipads, no deal was concluded on that occasion. He had given Johnas his business card and on the back of it he wrote down his bank account number, but the defendant did not have Johnas’s in return because Johnas left his at the hotel. They have not seen each other ever since.

20.In the following 6 months after this encounter, except a few phone calls from Johnas, there wasn’t much contact between the two. Johnas, however, called the defendant again on 3^rd or 4^th of March 2013, this time they were able to strike a multi-million dollars (3.6 million HKD) deal over the phone- Johnas agreed to buy from the defendant 600 ipads at $6,000 HKD each and payment would be made by TT.

21.According to the defendant, this was indeed the biggest order he had ever had because his annual business turnover for the previous 4, 5 years was no more than 3 million HKD.

22.For an order of this magnitude, and a lack of a written agreement, there bound to be questions arising every now and then, be it payment, the goods, or delivery, which the defendant might want to get in touch with the buyer to sort things out. Here we have a situation where only the buyer could contact the seller (i.e. the defendant) but not vice versa- it’s a one-way communication.

23.Strange to say the defendant seemed not to have any interest in finding out more about this big customer of his, for example, where he conducted his business, or what company he worked for. But the most curious of all is that he did not have the means of contacting Johnas- no telephone number, no email etc.  Why did he not ask Johnas for his contact information?

24.To the defendant, this was entirely a legitimate business transaction, but in describing the deal, the defendant had painted a rather different picture- it was very much like someone buying a grocery item from a corner shop. It’s just too unreal.

25.I have no doubt in my mind this so-called buyer, Johnas, was a made-up character and his account of the deal was totally fictitious. In fact, there is a lot more evidence to point to this conclusion; I’ll just quote a few more to illustrate my point and to show that the defendant’s story falls apart under scrutiny.

The way they negotiated the deal

26.First, for such a big business transaction, there being no written agreement stating clearly what parties had actually agreed to is enough to cause a lot of eyebrows to be raised. Indeed when the defendant was giving evidence in chief, he only talked about ipads without mentioning the type of ipads that the buyer agreed to buy, it gave the impression that the buyer would take whatever ipads the defendant had got for him. It was only upon being probed by the prosecutor about this, did the defendant say the buyer needed ipads of “64 Celeron” for the first time. 

27.Whatever that means I am not prepared to find out, but it’s common knowledge that there are different types and sizes of ipads on the market. The defendant was unable to come up with any documentation, any proof that the deal he had with Johnas was about ipads of 64 Celeron. I’m sure he was just saying it in response to the prosecutor’s question. I don’t think he’s telling the court the truth.

28.He said one of his suppliers came into his shop one day, he just asked if he could supply him 600 ipads, the answer was in the affirmative and the supplier then asked him to pay them cash about 2.4 million HKD as deposit (70% of the purchase price(3.4 million HKD) at $5,700 apiece). Clearly the defendant was trying to explain why he had to withdraw cash, first 2.5 million and then 1 million later on from the account. Again there wasn’t any written form of the order stating the type of ipads he wanted. Everything was done orally. In his oral order, no mention of 64 celeron being the type of ipads that he was getting from his supplier- how could the defendant be sure that the ipads he was getting from the supplier were exactly the ones that Johnas wanted? Put simply, his behaviour did not make any business sense.

29.Looking at the transactions as a whole - the selling and the sourcing, the only thing we know is ipad without any descriptions, it’s like buying a pig in a poke, to say the least. I don’t think a multi-million-dollar deal would be conducted in this kind of way. I believe there was no such ipad deal. It was a made-up story by the defendant attempting to explain away his dealings with the money in his account.

Deposit of 966,256 euro by mistake

30.Remember such a deposit made by Johnas to the defendant was originally meant for the payment of the purchase of ipads, albeit a much larger amount than the purchase price was deposited. Just pause for a moment to think about this. They initially negotiated the price using Hong Kong currency- $6,000 apiece; if Johnas intended to pay the defendant euro instead of HK dollars, it would only make sense for him to at least contact the defendant first to work out the correct amount to be sent because the exchange rate would likely be varying from time to time. Why this did not happen?

31.Furthermore, from Johnas’s point of view, the defendant was obviously a stranger to him; he met him once but that certainly wouldn’t tell him much about what kind of person the defendant was.

32.Now Johnas would want to give the defendant millions of dollars for a business deal, but on what basis he had the confidence that the defendant would not turn out to be a less scrupulous man- i.e. absconding with the money once he’s got hold of it. He saw him some 6 months ago, things might have changed a lot since then, why not pay him a visit to see if he was still conducting business at Chung King Mansions? He could have moved by now, if so, just how then would Johnas know where to find him? Without first making sure where the defendant was, I find it hard to believe that he would send the defendant millions of dollars to his bank account straightaway? That’s just nonsensical.

Return of the extra money

33.The defendant said he discovered the substantial deposit of 966,256 euro in his account on 7^th March 2013, and soon afterwards, he received email (the record of which was lost) from Johnas telling him that the money was for the purchase of 600 ipads but they had by mistake deposited a lot more than necessary.

34.Johnas gave the defendant a foreign bank account to pay back the extra money, which he did. In the email dated 8^th March 2013 11:38pm purportedly from Johnas to the defendant, Johnas thanked him for the return of the money, he said, “……….and you refund us around 600,000 euro, for the 366,000 balance remaining, if you could send us our stock in a brief delay as we agreed………..” 

35.It is worth noting that in his email reply to Johnas dated 9^th March 2013 3:28pm, the defendant said, “Don’t worry we already return to you the amount of 616,000 euro to your company account in Cyprus…………….. ”.

36.What is curious here is Johnas acknowledged receipt of around 600,000 euro, a ballpark instead of an exact figure; either the defendant returned the money or he did not; there can’t be an approximate sum of money if he did.

37.Even more curious is that there is a difference of at least 16,000 euro between the two figures mentioned by the parties. Bearing in mind 16,000 euro is about 160,000 HKD at that time which is not a small sum of money. Clearly there gave rise to a potential dispute and either side might have been accused of being dishonest, but very strangely, there was no follow-up on this whatsoever, none of them ever bothered to clarify the matter at all.

38.The above was simply based on their email exchanges, but more importantly, there was in fact such a remittance about which both of them seemed to have forgotten.  According to the admitted fact, a sum of 566,014 euro was remitted to a company bank account in Cyprus. This was the only remittance made and clearly the parties were referring to this in the above emails. 

39.When there was an actual transfer of a known amount, why did they use different figures? Clearly the emails were not telling the truth.

40.Now I come to the remaining amount. Undisputed is the fact that the defendant did withdraw cash up to 3.5 million HKD from the account, which is equivalent to about 350,000 euro. However vary the exchange rate might have been from day to day, it could not have produced a difference of 500,000 HKD during that period of time.

41.In his email to the defendant dated 10^th March 2013 3:19pm, Johnas said, “…………..can you give the remaining balance of 300,000 euro that you had take from us…….”. The defendant acknowledged in his email reply dated 10^th March 2013 6:20pm, “According to your decision, already I paid the amount (300,000 euro) to Mr Mario ……….”

42.The amount is 350,000 euro or there about, certainly not 300,000 euro. These are businessmen, they could not have made such a stupid mistake. I have no doubt that these emails were all fake.

The ease with which Johnas was allowed to back out

43.Johnas cancelled the deal within 3 days after he had sent the money to the defendant, in his email to the defendant dated 10^th March 2013 15:19 hours, he said, “……..we actually change our mind regarding the order, we got a better deal with other supplier………….” 

44.The defendant’s response was rather weird. In his reply email dated 10th March 2013 18:20 hours, he said, “…..but I am not happy with this decision. I hope we can do business in future………..”  This was the only good moan he had about it.

45.If he really wanted to do business, why waited in future? More sensible thing to do was to try to re-negotiate the deal at hand. Remember he had Johnas’s money in his hand at that time; he could have at least done something to drive a hard bargain. Not doing any of that, his behaviour was simply not consistent with someone who had entered into a contract of sales with others.

Handover of cash of 3.5 million

46.Now that the deal had been cancelled, Johnas told the defendant that he would send an employee, Mario, to come to collect the cash 3.5 million he had withdrawn earlier on. The defendant testified that he had asked his partner to accompany him to the Kowloon Park where he handed over the money to Mr. Mario.

47.Basically Mr. Mario was a total stranger to the defendant, and the defendant had no means of locating him. It beggars belief that a substantial sum of money would be handed over to a stranger in these circumstances, especially when there existed other more secured ways of handing over the money, like paying into a designated bank account-at least there was proof of it. 

48.Despite the fact that the defendant had called his partner to testify on his behalf, I do not believe that the handover of money in the park had ever occurred.

Facts the court found proved

49.The facts that the court had found proved include the following:

(1)- The money, 966,256 euro, came from the crime of a telephone deception;

(2)- Madam Barrios was deceived into acting on an invoice to remit the money to the defendant’s company bank account as provided in the invoice; and the invoice has the defendant’s company name “Arsons System” printed on it;

(3)- The defendant had dealt with the money such as making the TT or cash withdrawals on the occasions (time and date) as set out in paragraph 4 above;

50.As I have mentioned before, dealing forming the actus res of the offence of money laundering is not in dispute. Perhaps I should say as far as the unsuccessful attempt to remit 50,400 euro (charge 4) is concerned, what the defendant did in relation to that had gone beyond mere preparatory to the commission of the offence. So what is left for me to consider is the state of mind of the defendant at the time when he dealt with these monies.

State of mind of the defendant

Knowledge

51.First of all, someone had practised a telephone fraud on Madam Barrios is beyond any doubt, and the money was remitted to the defendant’s bank account as a result.

52.Look at it from another angle, when the con artists decided to use the defendant’s bank account to receive the proceeds of their crime, they must have thought about how they were going to get the money back from the defendant. As the evidence shows the account was under the exclusive control of the defendant.

53.From the con artists’ perspective, if the defendant were to be kept in the dark, it would be more risky for them, simply because they had no control over what the defendant might do after discovering a sudden windfall of 966,256 euro in his bank account. He might report it to the bank, to the police, or withdraw it then going into hiding.

54.Obviously it was a race against time. The con artists would want the money to be out of the defendant’s account as soon as possible, because the Spanish company might find out the scam sooner or later and the money would then be frozen by the bank.  

55.In the circumstances, it would only be to their advantage if the con artists had reached a certain understanding between them and the defendant beforehand that the money needed to go out of his account, the sooner the better. In other words, they needed the defendant’s co-operation.

56.The evidence shows that the defendant did remove the money out of his account very quickly.

(1)- 10:52 hours 7^th March the money deposited;

(2)- 16:50 hours 7^th March cash withdrawal;

(3)- 10:21 hours 8^th March TT to Cyprus;

(4)- 10:29 hours 8^th March cash withdrawal;

(5)- 16:39 hours 8^th March TT to Cyprus failed

57.As can be seen from above, the defendant was able to remove almost the whole lot of money from his account within 24 hours after its deposit (see (1) to (4) above). It is clear evidence of co-operation on the part of the defendant. And the reason he did that, he knew the money he dealt with was proceeds from an indictable offence.

58.I like to make it clear that I am not saying that the court found the defendant to be a knowing party to the telephone scam, all that I say is I’m satisfied so that I’m sure he knew the money represented proceeds from an indictable offence at the time of his dealing with it. 

Reasonable grounds for believing

59.If my conclusion of knowledge as stated above is to be regarded as incorrect, on the evidence before the court, I would say that the defendant had reasonable grounds for believing that the money he dealt with represented proceeds from an indictable offence.

60.As I have said before I rejected the defendant’s story. I do not believe that there was this ipad deal nor was there such a handover of 3.5 million cash to one Mario. He did remit 566,014 euro to a company in Cyprus, but I do not believe it was done as a result of a business deal as he described.

61.The defendant did not expect that there was a deposit of 966,256 euro in his account, because the amount was way above any of his business transactions he had before. And it was in euro, he should have known if he had any business deal involving payment by euro around that time. On the evidence before the court, obviously there was none.

62.Clearly the defendant knew he was not entitled to this money, now when he discovered it, there were other ways he could deal with the money than what he did in the present case such as informing the bank to find out who sent the money, if it was a mistake, then had the money returned to its rightful owner, or simply report it to the police.

63.But he nevertheless went on to deal with it in such a way that the money was dissipated elsewhere within a relatively short time (24 hours).

64.As the evidence shows he successfully remitted some of the money to a company in Cyprus, and when he tried again about 6 hours later on the same day to remit another lot to the same company in Cyprus, this time he failed because the account had been frozen. Clearly on the evidence, the defendant had instructions to transfer money to a foreign jurisdiction, so there were other people involved.

65.Given the circumstances in which the defendant came by the money, he knew he was not entitled to it, and he quickly dealt with it by way of cash withdrawals as well as remittance to overseas bank account. Anyone looking at the situation in its entirety would so believe that the money represented proceeds from an indictable offence. Put it in a different way, the defendant ought to have known the money he dealt with represented proceeds of an indictable offence.

Conclusion

66.For the reasons given above, I am satisfied that the prosecution have proved each of the 4 charges against the defendant beyond reasonable doubt, and the defendant is duly convicted as charged.